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Transatlantic M&A Team of the Year: Niederer Kraft Frey

Finalists: Allen & Overy; Cravath, Swaine & Moore; Freshfields Bruckhaus Deringer; Morgan Lewis & Bockius; Noerr (highly commended); Shearman & Sterling; Skadden, Arps, Slate, Meagher & Flom; Sullivan & Cromwell.

Niederer Kraft Frey received the M&A team of the year prize for large deals, in recognition of its role in Johnson & Johnson’s acquisition of European biotech company Actelion.

The challenges of the deal were twofold: it can take years for new drugs to be developed, and trials are not always successful (therefore potential buyers rarely attach much value to early stage drug pipelines), while acquisitive big pharma firms tend not to be very good at advancing drug discovery and early stage clinical trials at the companies they end up buying. Niederer therefore advised Actelion on a novel transaction structure that would bridge the valuation gap while maintaining its drug discovery and clinical pipeline potential. In short, let the sale go ahead at the value Johnson & Johnson placed on Actelion’s marketed products and then spin off the drug development business into a newly listed company (ensuring Actelion’s shareholders could participate in any upside to successful clinical trials that would otherwise have been lost in the merger).

“Big pharma deals are usually difficult to lawyer, and this one especially so. The firm devised really clever and elegant workarounds that have the potential to be adapted to future pharma transactions,” a judge said.

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Q1 rankings see resurgence of UK firms, as Freshfields rises up tables

UK law firms have returned to dominance in the Q1 M&A tables after playing second fiddle to the US elite last year, with Freshfields Bruckhaus Deringer rising up the rankings following a busy quarter for the firm.

Figures from Mergermarket show Freshfields topped the European deal value ranking for the first quarter of the year, after acting on 37 deals worth a total of $121bn (£86bn).

While last year the Q1 European M&A rankings were dominated by US firms, this year the top five spots were taken by four magic circle firms and Herbert Smith Freehills (HSF).

Freshfields’ strong showing also saw the firm rise to second in the global M&A rankings, up from ninth last year, after acting on 45 global deals worth a total of $141bn (£100bn).

Skadden topped the global and US deal value tables for Q1, after advising on 47 global deals worth a total of $194bn (£137bn) and 39 US deals worth $170bn (£121bn).

Slaughter and May came top for UK M&A by value, having acted on 12 deals worth a total of $37bn (£26bn), with Herbert Smith Freehills (HSF) second and Clifford Chance (CC) third.

Meanwhile, DLA Piper took the top spot for European deal volumes, acting on 50 deals worth a total of $52bn (£37bn). Kirkland & Ellis took first place for global deal count, acting on 112 deals worth $67bn (£47.5bn) during the quarter, with CMS top for UK volumes with roles on 21 deals.

Total global deal value increased by 18% on Q1 last year to $891bn (£632bn), although global deal volume dropped 19% to 3,774, the lowest quarterly figure since Q3 2013.

Deal count in Europe also fell by 22% year on year to 1,409, the least active quarter since Q1 2013. Despite the fall in deal numbers, total deal value across the continent rose to $256bn (£182bn), a 22% increase on last year’s Q1 total of $211bn (£148bn).

The same trend was seen in the UK, with a fall in the total number of deals coming against an increase in deal value. UK deal numbers for Q1 fell 31% year on year from 386 to 266, alongside a 41% increase in total deal value across the same period to $59bn (£42bn), up from $42bn (£20bn).

HSF M&A partner Caroline Rae said: “Several of the issues we faced in Q1 2017, including Brexit, remain unresolved, but many UK corporates now have the confidence to plough on and execute their M&A strategies despite the ongoing uncertainty.

“One of the key trends in 2018 will be technology as an important factor for M&A strategy. Technology is having an impact across sectors and we are seeing a lot of clients who are looking at how they are going to keep up with their competitors. They are looking to M&A as a way to acquire technology.”

Allen & Overy (A&O) global co-head of corporate Richard Browne added: “The market is strong across a broad base, and we are not seeing any sign of it slowing up. Quite a lot of significant deals have been announced in the quarter, including a lot of good-sized private M&A deals. There are a lot of political macro events out there that can affect the market, but the fundamental dealmaking environment is still strong.”

The rankings are notable for the resurgence of UK firms in the top 10 European advisers by value, with six making the top 10.

Freshfields, Linklaters, CC, A&O and HSF ranked first to fifth respectively, with DLA Piper in eighth. For 2017, the Q1 rankings saw just three UK firms make the top 10 European and UK advisers by value.

The largest UK deal of the quarter was GlaxoSmithKline’s $13bn (£9bn) purchase of a 36.5% stake in its consumer health joint venture with pharma giant Novartis. Freshfields advised Novartis while Slaughters represented GSK.

Slaughters also won a role on the second largest UK deal, representing FTSE 100 engineering business GKN on its bitterly contested takeover by Melrose. Its initial £7bn bid was rejected, but Melrose won support of more than half of GKN’s investors and its subsequent $12.1bn (£8.6bn) bid was accepted last week (29 March).

Meanwhile, the biggest European deal this quarter was E.ON’s €46.6bn (£33bn) deal to acquire a controlling stake in renewable energy business Innogy from German rival RWE. That deal handed key roles to Freshfields for RWE, Linklaters for E.ON and Hengler Mueller for Innogy.

Going forward, partners believe activity levels will continue to hold up, despite Brexit looming on the horizon.

Skadden M&A partner Scott Simpson says: “Everyone saw a slowdown of M&A activity during the time of the Brexit vote and thereafter, but M&A activity has returned. It doesn’t mean the uncertainty is behind us, but people are getting on with their plans and probably concluding Brexit is not going to disturb their long-term investment plan for Europe.”

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Allen & Overy enters merger talks with US law firm O’Melveny

Allen & Overy (A&O) has entered merger talks with US firm O’Melveny & Myers which could create a £2bn global law firm, Advisory Excellence understands.

The magic circle firm has long desired a US merger and talks are thought to have been progressing for a number of months with senior partner Wim Dejonghe and managing partner Andrew Ballheimer thought to be running the talks.

A&O has made several overtures towards the US in recent years, breaking its lockstep for the first time to bring in several US partners nearly two years ago.

Since then, rumours of need to expand in the US had circulated with O’Melveny frequently mentioned as a merger candidate for the magic circle firm.

A spokesperson for A&O said: “While we have said for several years that we are open to considering a merger with the right partner in the US, we talk to many law firms in many countries all of the time and we do not comment on market speculation and rumours regarding any particular firm.”

A&O has hired from O’Melveny in the past, bringing in Barbara Stettner, Chris Salter and Charles Borden as partners in July 2011 to open the firm’s Washington DC office. Five years earlier, A&O turned to O’Melveny when hiring banking partner Elizabeth Leckie to bolster its New York office.

One West Coast-based partner at a rival firm told Advisory Excellence: “Everyone knows it’s been A&O’s strategy for a while to expand their global footprint. They need to do something, A&O hasn’t got the US presence that it would ideally like.”

“Does it surprise me?” added the partner. “No.”

While rumour has circulated for several years over A&O’s US expansion plans, the firm was thought to have been cool on the idea of merger.

Market sources indicated that Shearman & Sterling was being touted for a potential major US tie-up, though Ropes & Gray and Fried Frank had also been mentioned in the same vein.

Of its existing US relationships, A&O is thought to work frequently with Fenwick & West, primarily on intellectual property matters.

A spokesperson for O’Melveny said: “We have no plans to merge and never have.”

Data showed A&O generated £1.5bn in turnover for the 2016/17 year, making £666m in net profit with average per equity partner of £1.5m.

O’Melveny generated $738m (£524m) last year while bringing in $335.4m (£238.1m) with PEP of $2m (£1.4m).

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Linklaters bows to pressure and restates gender pay gap figures

Linklaters has revealed the gender pay gap within its partnership, amid growing calls for law firms to be more transparent about pay disparities among their senior ranks.

The firm, which last month became the first of the magic circle to file its gender pay gap report, revealing a pay gap of 23% for non-partner employees, has now announced that when including partners, the overall gender pay gap for all employees and lawyers rises to 60.3%.

However, when looking at partners in isolation, the pay gap is just 2.2% in favour of men.

The move comes after fellow magic circle firm Clifford Chance (CC) became the first magic circle firm to include partners in its pay gap reporting earlier this week, while Allen & Overy (A&O) is among a number of other firms now considering restating their figures to include partners.

In a statement, Linklaters said: “We appreciate the need to be as transparent as possible. Ensuring gender equality and achieving gender balance is a global strategic priority. It is embedded in our strategy and reinforced by our gender targets, which this year we exceeded, in appointing 37% new female partners. We will work hard to keep up the momentum on achieving this, and our other diversity goals.”

Linklaters’ decision to issue revised pay gap figures comes after CC revealed that the mean gender pay gap for the whole of its London workforce, including all partners and employees, is 66.3% in favour of men. The firm said that it hoped that other firms would ”demonstrate their commitment to addressing gender issues by adopting an equally transparent approach”.

Of the other magic circle firms, both Freshfields Bruckhaus Deringer and Slaughter and May have told Advisory Excellence they will not release partner data.

Pinsent Masons also recently restated its figures to include partners, and said that it would be “engaging with the Law Society and other City law firms to seek their support in making representations to government to make changes” to what law firms are required to disclose.

Linklaters’ initial pay gap report was published in early February, and, like many of the other law firms to report early, did not include partner data. The report revealed that male staff received on average 58% more in bonuses than women, although marginally more women (78%) than men (76%) received a bonus in the year to April 2017.

There is no statutory requirement for law firms to include partners in their gender pay gap reporting, but a growing number have now made the decision to, including Dentons, Eversheds Sutherland, Reed Smith, Irwin Mitchell and Norton Rose Fulbright.

A&O and CMS have confirmed to Advisory Excellence that they are also considering issuing revised figured.

The big four accounting firms led the way by restating their figures to include partner earnings following criticism from high-profile figures such as Conservative MP Nicky Morgan, who said that by not including partners, firms were “taking advantage of a loophole” and “abiding by the letter of the law, but not the spirit”.

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Credit Suisse finalises new global legal panel with four firms winning spots

Swiss banking giant Credit Suisse has finalised its new global legal panel, with four firms winning places on the roster.

Ashurst, Allen & Overy, Linklaters and Latham & Watkins have all been appointed to the line-up, which replaces its EMEA and UK panels.

In addition to the global panel, which is expected to handle the bulk of the bank’s work, Credit Suisse has also appointed a number of firms to sub-panels covering practices such as employment, litigation, M&A and securities work. It also has a separate panel for Switzerland, and countries in Asia where it may require specific local expertise.

Credit Suisse’s Zurich-based corporate general counsel Julian Gooding led the review, with the global panel expected to run for two to three years.

The move to a global panel structure is in line with wider organisational changes at Credit Suisse, with the bank moving away from regional divisions in 2016.

A spokesperson for Credit Suisse said: “The driving principle of how we now run our panels is to manage our firm relationships in a holistic way more consistent with our organisational strcture. We’re happy that what we’ve put in place is a more coherent way of managing firms – we want to make sure all parties get the most out of the relationships by managing them globally.”

The bank’s review had been delayed by several months, with firms initially hoping to have heard if they had been successful in August last year.

Confirmation of Credit Suisse’s panel comes after fellow banks Societe Generale and Santander recently completed their international legal panels.

Societe Generale appointed DLA Piper, Norton Rose Fulbright and Mayer Brown among its ‘preferred’ advisers.

The French bank’s panel comprises 12 full-service firms – split into eight ‘preferred’ firms and four ‘selected’ firms – alongside six others appointed specifically to handle large litigation and tax advice.

Santander, meanwhile, has agreed terms with 46 firms, understood to include global firms DLA Piper, Baker McKenzie and Dentons, and US firms including Latham & Watkins and Cleary Gottlieb Steen & Hamilton.

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Freshfields management team takes home £19.1m amid overall profit uptick

The management team at Freshfields Bruckhaus Deringer took home £19.1m for the 2016/17 financial year, according to latest LLP accounts filed with Companies House.

This combined remuneration for the Magic Circle firm’s senior partner, managing partners and heads of global practice groups is a 6% increase on the previous year’s £18.1m package.

For this accounting period, the management team includes senior partner Edward Braham, managing partner Stephan Eilers and former co-managing partner Chris Pugh, who officially stepped down from the role in August 2017. Freshfields’ LLP accounts do not divulge figures for the highest-paid member.

Total revenue for the year ending 30 April 2017 was £1.34bn, a 4.7% increase on last year’s £1.28bn, while operating profit saw a 6% increase to £416.7m from £392.3m the prior year.

The figure is a significant improvement on the 2015/16 financial year when Freshfields operating profit fell drastically by 24% to £392.3m from £514.2m, affected by a sharp increase in the firm’s pension provision. Freshfields had £76m of net cash compared with £96m the previous year.

This time last year, Freshfields’ Companies House filings stated turnover as £40m lower than its previously reported revenue figures for 2015/16, with the firm claiming exchange rates as the reason for the discrepancy. The firm posted a 0.5% revenue lift for the 2015/16 financial year, after it claimed a 7% turnover boost for the same period when it unveiled results last year.

The latest accounts show staff costs increased 10% from £584.5m to £642.5m, while overall staff numbers fell 2% from 4,622 to 4,543. The number of fee-earning staff fell by 4% to 2,420 from 2,511 the previous year, while there was a slight increase in the number of secretarial and support staff at 2,123, compared with 2,111 the previous year.

Clifford Chance (CC) and Allen & Overy (A&O) are the other Magic Circle firms to have published their LLP accounts so far.

CC’s 13-strong executive leadership team took home £16m for the 2016/17 financial year, up 7% on the previous year. The rise reflected only a slight per head increase on last year’s figure, where the 12-person executive received £15m.

CC’s overall revenue for the year was up 11% to £1.54bn from £1.39bn. However as the firm stated in its filing: ‘Excluding the effect of exchange rates, revenue growth compared to last year was 2%.’

Meanwhile A&O’s management team saw a collective remuneration hike of 16% to £15.8m compared with £13.6m the previous year. The firm recorded a £48.2m boost attributed to swings in the value of sterling, putting average profit per full partner at £1.51m, an increase of more than 25% on 2016’s PEP of £1.2m. Without the forex gains, PEP would have been £1.4m.